After a major run in 2018 and 2019, gold prices have weakened in the second half of CY2020. Over the past six months gold prices have dropped by 6.4 percent. Experts still say that gold should be an important part of your portfolio. Here are some of the reasons why you should not ignore gold.
Incentives and inflation
In a recession, governments around the world tend to invest in the financial system. It has been a time-tested weapon used by policymakers to make funds available to those who need them in difficult times. However, over time, its effectiveness has declined and so much encouragement has become the order of the day. It is already expected that the economy will take a longer time to recover, there is more pressure on major the global banking owners, including in the United States. This should definitely increase gold prices.
But very easy money also leads to inflation. With more money to come in and go into the real economy, unlike in 2008 when financial support was heavily supplied to banks and financial institutions, inflation opportunities increased significantly, according to Mr Chirag Mehta, Senior Fund Manager-Alternative Investments, Quantum Asset Management Company.
High inflation and high inflation – government spending that exceeds government revenue – provide gold prices.
Real prices are low or bad
In the wake of high inflation, fixed-income investors are demanding higher interest rates, protecting their purchasing power. But the current situation requires lower prices. Globally, prices are expected to remain low for some time. This leads to a real or negative real estate (interest rate minus the inflation) interest rate.
Some investors may find gold as an attractive investment option to protect their purchasing power, since the yellow metal acts as an anti-inflation fence.
There are still political risks
The COVID-19 epidemic has put aside much of the world’s controversy on the back-burner. Some of them are expected to come forward as the vaccine can help return to normal. Whether it is an Indo-China conflict, a political conflict in the east-east or a trade war between the US and China, investors cannot ignore it. With Joe Biden taking over as the US President does not absolutely end the trade war with China. This problem is expected to be even more specific before it is resolved. The uncertainty surrounding it needs to be allocated gold, ”said Prabhu.
A weak dollar also makes gold very valuable. The US dollar has done well compared to other major currencies over the past decade, as DXY – the dollar index – rose to 103 January 2017 from 70 recorded after the global financial crisis. DXY turned volatile after the start of the trade war with China, but once again gained 103 points in March 2020 as a panic-stricken fear led investors to prefer the US dollar over many other classes. But this increase did not last long. The index has been declining and quoting in about 90s.
Ther is a loss of confidence in the world right now and the heavily indebted US can continue to pay off its debts. Euro more than a dollar to be the most widely used currency in October is one example of that, ”said Mehta. He expects gold, the so-called dollar price, to be a major benefactor when the crisis of confidence hits the world’s reserves.
Estimated stock markets
Investors have seen a positive return on investment in rates over the past few months, as stock prices have risen. But fear of a correction may play into their minds now, as prices are high. One can find it difficult to invest, because despite the recent adjustments, the markets are at a high level. Since gold has a negative association with money, it is a good idea to allocate some money to gold to cover the decline of the entire portfolio.
Will gold prices go up?
Gold prices have been moving side by side for a while now. However, if the macroeconomic situation does not improve materially, gold prices could rise again. “Weak global recovery after COVID-19, coupled with a low interest rate, could provide a tail for yellow metal items,” said Rupak De, Senior Research Analyst, IIFL Securities. He expects gold prices to be weak, but expects to move to Rs 60,000 per 10 grams in the medium term.
What should you do?
Financial advisers often recommend gold for higher profits. Setting your entry and exit time is important. That rarely happens.
The best way is to go through the distribution of your property. Invest up to 10% of your portfolio in gold. Invest in gold trading exchanges or independent gold bonds or a combination of both. It should work for the purpose of supporting your portfolio in a timely manner. If the gold performs as well as expected, you will come back with a return kick. Expectations, however, should be that gold will be similar to inflation over the years.